A Regrettable Drain on the DWP : Utility: Ratepayers would be better served by an elected DWP board than the appointed one.

The relative ease by which Mayor Richard Riordan extracted money from the Los Angeles Department of Water and Power to fund the expansion of the Police Department exposes the need to change how the utility is regulated.

Reforms should begin with the appointed five-person Board of Water and Power Commissioners. The City Charter mandates that the board operate the DWP in a businesslike manner and not fund other tax-supported city services.

However, the board has bowed to the mayor’s demand for funds and in doing so has violated the charter’s intent, if not the letter of the law, by exploiting a confusing loophole that allows for fund transfers under limited circumstances if surplus funds are available. In 1994, the board used the loophole to transfer $74 million to the general fund. Half came from the sale of surplus properties and the balance from the DWP’s budget. The board is beating the bushes for additional transfers from operating savings.

Since these appropriations could increase rates, it would be logical to expect the City Council to challenge the board. Unfortunately, the council has a conflicting responsibility: to satisfy the city’s insatiable appetite for money. This need has created an incestuous relationship with the DWP.

The glaring example is the council’s built-in bias to approve electric-rate increases, since higher rates automatically increase income from a 10% energy tax.

This relationship is also evident in the DWP’s administration of the energy tax and sanitation fees for the city.

The council has an even greater vested interest to not challenge the board, since the charter loophole allows the DWP to contribute 5% of its annual gross income as an in-lieu tax. In 1994, this contribution amounted to a hefty $122 million. In 1995, it will be reduced to $109 million because the DWP took in less income due to the slumping economy and the earthquake.

The council’s silence over the new transfers does not reflect ignorance. If anything, it represents applause for the mayor and sanctions approval.

A continuation of this policy must inevitably lead to either rate increases, poor service for customers or bankruptcy.

One immediate consequence may well be a downgrading of the DWP’s excellent double-A bond rating. This would increase the DWP’s cost of borrowing money.

More seriously, by altering the DWP’s pension plan and threatening employee layoffs and indicating that the savings will be subject to transfer, the mayor has triggered a lawsuit by two employee unions. This could close the surplus loophole and deprive the city of all DWP funds, including the annual 5% contribution.

The mayor’s actions have also exposed a conflict of interest involving attorneys assigned by the city attorney to protect the DWP’s interests. When the city attorney agreed with the mayor’s liberal interpretation of the surplus clause, his chief assistant at DWP did not challenge him. In effect, this consensus delivered the key to the vault to the mayor.

This was a momentous ruling, since the charter indicates that former city leaders wanted to protect the utility from such raids and the loophole was included for a limited purpose. This was to allow the utility to provide the city with an in-lieu tax to counter claims that the municipally owned utility was competing unfairly with private utilities.

However, the confusion created by the poorly worded clause and the city attorney’s ruling is such that the charter needs to be re-examined and clarified.

Furthermore, the board’s surrender to the mayor indicates that ratepayers would be better protected if it were an independently elected body rather than appointed.

Ratepayers also would be better off if rate-fixing powers were removed from the council and left to the elected board.

However, all of these questions should be decided by an objective citizen body. A committee appointed by the mayor is examining water rates, and it would be simple to expand the task--if the mayor can rise above his own conflict of interest in this matter.